June 30, 2017

In 60 days, a chance to influence OTR future

Comments are due Aug. 29 – 60 days from today -- about NCUA’s revisions to the overhead transfer rate (OTR) methodology, and NASCUS is urging its members to weigh in on the proposal – because the issue is far from settled. “There is much work to do between now and the close of the comment period in 60 days,” NASCUS President and CEO Lucy Ito said. “All NASCUS members – and anyone interested in this issue – should consider posting comments with the agency.” To facilitate that, Ito said, NASCUS would be developing relatively early its own comment letter on the issue, to provide credit union regulators and practitioners with talking points to draw upon in drafting their own letters.

At its June board meeting last week, the NCUA Board proposed a revised methodology for determining the OTR. Under the proposal, NCUA would adopt what it termed a “simplified approach” reflecting that “safety and soundness is not the sole domain of the insurer.” The annual rate would be set at 60%, down from the 2017 rate of 67.7%, and the lowest rate since 2013 (when it was set at 59.1%). The average rate over the past 16 years is 61.2%; from1986-2000, the OTR was 50%.

According to NCUA Board Chairman Mark McWatters, the goal is to make the OTR calculation methodology more transparent. “We are taking something that is largely misunderstood to where – with a little bit of study – is more clear and understandable,” he said during last week’s meeting.

NASCUS’ Ito said that the proposal is a significant step in the right direction and that the association appreciates that NCUA has acknowledged many of the views NASCUS has previously shared in submitted comments. However, she noted that the rate arguably could be moved lower, with justification, in consideration of the continued redundancy between states' safety and soundness exams and NCUA's insurance exams, as well as questions of whether the proposed 60/40 allocations make sense for the agency’s Asset Management and Assistance Center (AMAC), Office of Consumer Financial Protection and Access, and the Office of Small Credit Union Initiatives (OSCUI).

"In any case, both state and federal credit unions should push for the lowest possible OTR that can be justified because the share insurance fund is credit unions' money,” she said. “NCUA costs covered by the NCUSIF via the OTR are ultimately borne by federally-insured state and federal credit unions. If the OTR is lower, then there is more available in the share insurance fund to count toward the equity ratio which, in turn, means there is less pressure on NCUA to charge credit unions additional premiums and there is more available for possible dividends back to credit unions."

Ito said that, in addition to developing and releasing the NASCUS comment letter as a talking points to stimulate others’ comments, the state system will advocate for a methodology that meets the shared objectives of transparency, fairness and simplicity.

TRUMP REMOVES ‘ACTING’ FROM MCWATTERS’ TITLE

Notably missing from the story above is the word “acting” in the title for Mark McWatters in chairing the NCUA Board. That’s because this week President Donald Trump made McWatters the 10th chairman of the NCUA Board, removing the “acting” tag from the title, borne by the NCUA leader since January. It’s a significant move by the White House, placing long-term trust in McWatters to lead the agency, NASCUS Leader Ito said. “Mark McWatters has consistently demonstrated his commitment to a fair credit union regulatory regime and an agency that considers the wide spectrum of stakeholders’ views on key issues. NASCUS applauds the appointment, and looks forward to working with Chairman McWatters.” In a statement this week, McWatters thanked the president and stated his commitment to “providing regulatory relief for the credit union community, in compliance with the Federal Credit Union Act, and to streamlining the operations of NCUA as a prudential regulator.” McWatters was nominated to the NCUA Board by then-President Barack Obama in January 2014. Following Senate confirmation, he took office as an NCUA Board Member on Aug. 26 of that year. He had served as acting board chairman since Jan. 23.

OTHER REGULATOR NOMINATIONS REPORTEDLY IN PIPELINE

There may soon be others tapped by the President Trump for key posts in federal financial regulation. According to a number of reports, the White House is still considering naming Randy Quarles as Federal Reserve Board vice chairman for supervision (which some say is the most important financial regulatory post the president can fill). Since created by the 2010 Dodd-Frank Act, however, the post has been empty; President Barack Obama never nominated anyone to fill it. The incumbent (who requires Senate confirmation) would be a full member of the Fed board of governors (participating in interest rate decisions), but also charged with overseeing the largest U.S. banks. Quarles is a veteran regulator, serving in the Bush administration as Treasury assistant secretary for international affairs and undersecretary for domestic finance. He also has many years’ experience in banking and finance law. Meanwhile, reports are surfacing that the White House is ready to tap Chris Campbell, majority staff director for the Senate Finance Committee, as Treasury assistant secretary for financial institutions. The post typically serves as a key liaison between the administration and other regulatory agencies, including NCUA. Finally, if President Trump does not re-nominate Janet Yellen for another term as Federal Reserve Chairman (and if the president doesn’t offer the position to his current National Economic Council Director Gary Cohn), some say that Kevin Warsh, a former Fed governor, would be offered the job. Yellen’s current term as chair ends next February.

SPENDING BILL PLACES NCUA BUDGET UNDER APPROPRIATIONS

Budgets of NCUA and other independent federal financial regulatory agencies – including the FDIC and OCC – would be subject to the congressional appropriations process under provisions of a spending bill approved Thursday by the House Appropriations subcommittee on financial services and general government. Additionally, the bill makes deep cuts to the Community Development Financial Institutions (CDFI) Fund and the NCUA’s Community Development Revolving Loan Fund (CDRLF).

While the appropriations-requirement provision is similar to one contained in the Financial Choice Act (H.R. 10), already adopted by the House, the measure introduced Wednesday holds an enhanced status: It is one of the 13 major appropriations bills the Congress must pass to fund the government. From that stand-point, if Congress wants to approve a government spending bill, the Appropriations Committee bill becomes a “must pass” measure. Additionally, the future of a financial regulatory reform bill the Senate (if a bill emerges at all) is far from certain.

In addition to NCUA, FDIC and OCC, the bill also places the budgets of the CFPB, Federal Housing Finance Agency (FHFA), and the regulatory functions of the Federal Reserve under the congressional appropriations process. The budget for the SEC is already under the process. If the measure is adopted, Congress would then have nearly total control over budgets of the federal financial regulators (now, as independent agencies, their budgets are not included considered the appropriations system).

Credit union trade groups are calling for removal of the budget appropriations-process requirement for NCUA from the bill, saying if the requirement passes it could blur the independence of the agency and the credit union system. The trade groups are also urging appropriators to restore funding for the CDFI and the CDRLF.

Consideration of the spending bill by the full House Appropriations Committee is expected on July 13.

REPORT DETAILS CONSUMER COMPLAINTS STATE BY STATE

State-by-state statistics on consumer complaints about financial services, including volume, the products and services generating the most, company response rates, and a look at complaints from servicemembers and older Americans are summarized in a special report released this week by the CFPB. The State-Level Snapshot of Consumer Complaints from the bureau notes that – as of June 1 – more than 1.22 million complaints had been received by the agency. To give that number context, the reports provides a national overview and spotlights narratives submitted by consumers regarding their experience with the CFPB’s complaint process.

Key points made in the report include:

Complaint volume rose 7% between 2015 and 2016;

Companies provided a timely response to 97% of complaints they received from the CFPB;

More than half of consumers submitting complaints opt to have their narrative published;

Debt collection remains the most complained-about product or service, CFPB noted, with approximately 316,810 complaints to date since the Bureau began accepting debt collection complaints in July 2013. The report notes that since December 2011 (the date it began taking mortgage complaints) it has received approximately 272,153 mortgage-related complaints, representing just shy of one quarter (23%) of total complaints. The complaints include those about problems consumers experience dealing with their servicer when they are struggling to make payments.

SUMMARY OUTLINES SIX AREAS OF COMMENT SOUGHT FOR ATR/QM ASSESSMENT

Comments are due July 31 on six separate areas related to the CFPB’s Ability to Repay/Qualified Mortgage (ATR/QM) rules, according to a recent summary posted by NASCUS. The summary outlines a “rule assessment” published by the consumer bureau early this month. The summary notes that the purpose of the assessment is to determine the rule’s effectiveness in meeting the general purposes of Title X of the Dodd-Frank Act and the specific goals of the ATR/QM rule. That rule, the summary points out, aims to “assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive” among other things. The summary outlines the rule assessment itself, the ATR/QM rule, the bureau’s assessment plan, and the six areas on which the bureau seeks comment.

GA TO APPLY ‘S’ IN CAMEL BEGINNING NEXT YEAR

“Sensitivity to Market Risk” -- or the “S” component -- will be added to Georgia state-chartered credit union CAMEL ratings beginning Jan. 1, the state’s Banking and Finance Department told local credit unions Monday. In a letter, Deputy Commissioner for Supervision Melissa Sneed stated that the component will be added as a separate and distinct component rating, rather than as a factor in the “liquidity” or “L” component. She noted that by including the “S” component in CAMEL ratings, the department is utilizing the Uniform Financial Institution Ratings System modified by the FFIEC in 1997.

“Despite the adoption of the ‘S’ rating by the FFIEC in 1997, the NCUA has not implemented the separate rating of this component,” Sneed wrote. “While all regulators specifically review interest rate risk exposure, those discussions and related reporting to credit union officials have been consolidated as part of the ‘L’ or ‘Liquidity" rating.’ The ‘S’ component of the CAMELS rating system specifically addresses the degree to which interest rate changes can impact a credit union's earnings or net worth. This component also focuses on a credit union's ability to measure, monitor, and manage interest rate risk exposure,” Sneed added.

Sneed emphasized that the separation of the "S" component from liquidity does not imply a requirement for credit unions to develop enhanced management systems where market risk is “already appropriately identified, measured, monitored, and controlled.” Rather, she wrote, assigning a separate “L” and “S” rating is appropriate and provides for greater granularity and transparency.

Nineteen states have now either adopted the "S" component or indicated they will be adopting it soon.

MARIJUANA CU MAY RE-APPLY FOR FED ‘MASTER ACCOUNT,’ COURT RULES

A Colorado credit union chartered to serve the state’s marijuana industry may re-apply for a “master account” from the Federal Reserve to facilitate bank-to-bank transfers, as a result of a ruling by an appeals court this week. The 10th U.S. Circuit Court of Appeals in Denver ruled 2-1 to overturn a lower court ruling upholding the decision of the Federal Reserve Bank of Kansas City to deny the Fourth Corner Credit Union of Denver the master account. The credit union had sued the Fed bank; the lower court dismissed the case “with prejudice,” blocking the credit union from applying.

The appeals court found that the lower court’s reasoning that the credit union would use the master account to violate federal drug laws was wrong. “The district court dismissed the amended complaint, reasoning that Fourth Corner would use the master account to violate federal drug laws. This ruling was erroneous,” U.S. Circuit Judge Robert E. Bacharach wrote. “The district court should have presumed that Fourth Corner would follow the court’s determination that servicing marijuana-related businesses is illegal. And in the amended complaint, Fourth Corner essentially promised to obey the law that would be set out in the eventual declaratory judgment. In these circumstances, the district court had little reason to jettison the standard on a motion to dismiss and rely instead on suspicions about what Fourth Corner would do.”

However, the ruling comes with a caveat: until the federal Controlled Substance Act (CSA) is changed, the credit union will have to wait to serve direct license cannabis businesses and perhaps even ancillary accounts.

AGENDA FILLING OUT FOR ’17 SUMMIT, JUST TWO MONTHS AWAY

The 2017 NASCUS Summit is now just two months away, and planning is proceeding apace for the only annual, national meeting focusing on the state credit union system. The program features four days with 16 sessions, including such topics as fintech, the outlook for CFPB, the political and congressional outlook, the future of the corporate system, the path of the economy, the evolving field of membership, the future of “cross-border business,” payment systems and marijuana business banking in 2017 and beyond. In addition to these sessions, the Summit (set for Aug. 29-Sept. 1 in San Diego at the WestinGaslamp Quarter Hotel) presents the “The Next Big Idea Winner” sponsored by the National Association of Credit Union Service Organizations (NACUSO), and an update on current cybersecurity issues. For more information, including registration and current list of speakers, see the link below.

The global cyber attack reported this week -- causing major companies around the world to shut down their computer systems – is just another reminder of the crucial need for cybersecurity, and for learning how to avoid or deal with attacks. Beginning July 12, a special e-school focusing on cybersecurity, and following up on this month’s Cybersecurity Symposium in San Diego, gets underway with four live webinars and nearly nine hours of recorded sessions from the symposium. The e-school, sponsored by CUNA, is available for one year (in a recorded format after Aug. 2). See the link below for more information and registration … Reminder that nominations for the 2017 Pierre Jay Award – honoring outstanding individual service, leadership and commitment to the state credit union system – are being taken until July 28. Eligibility for nomination to the 2017 Pierre Jay Award is open to anyone, program or organization that has made a significant contribution to the state credit union system over the last year (or years). However, only NASCUS members are eligible to submit a nomination for consideration. For more information, and the nomination form, see the link below.